Dear Stephanie,

Have you considered doing a FHA loan instead of a lease option? Should you qualify for a FHA loan, you can purchase a home for as little as 3% down. There are also programs to help you with the downpayment. FHA has changes a great deal since I first started selling real estate.

You will need some money down for a lease option. At the end of the option if you did not want the house, you would lose your option money. Not knowing all the reasons why you would want to do a lease option, I still think you would be better served investigating an FHA loan.

If you are a Veteran, the VA has a home loan program that could work for you. Once again, you would need to meet the VA guidelines. Should you want some lenders that work with FHA or VA loans, give me a call.

Cordially,
Lynn H. Wilber, GRI, e-PRO®
Broker - Associate
Downing Frye Realty, Inc. - Naples, FL
Office: (239) 594-2780
Fax: (239) 594-2781
Websites: http://www.NaplesWave.com
Blog: http://www.NaplesWave.com/NaplesBlog

Sun May 25 2008, 08:27

There certainly can be. And you can protect yourself not just by having an attorney read the documents (that is, what's there), but by providing advice on what isn't there that should be. I'm not a lawyer, so this isn't legal advice. However....

Among the possible surprises:

Owner Mortgage Default:
As Brian touches on, the house that you're optioning can go into default. You pay your lease, but the owner is unable to pay the bank. Two ways to protect yourself: Have the owner sign an "Authorization to Release Information," which gives you the same right he does to contact his lender regarding the status of his loan. There's still not much you could do if he slides into default, but if you checked monthly, it wouldn't come as a surprise at the end of the lease-option. Another way of handling it is via a land trust, in which the owner puts his property into a land trust and names you as a beneficiary. You'd pay your money to the trustee, who would forward it to the lender.

Owner Unable To Deliver Clear Title
Other than a mortgage default, there are other situations--liens, suits, and judgments--which could attach to the owner and the property. Suppose he's in a traffic accident and gets sued and loses? Suppose he rehabbed part of the property and a worker filed a lien for unpaid bills? Suppose the owner is divorced, but the ex claims she owns half the property? You get the idea. Again, a land trust will address those problems.

House Won't Appraise
Suppose property values suggest the hosue is worth $300,000. And your lease-option is for $300,000. But prices decline, and in a year the house only appraises for $275,000. Unless you've got $25,000 in cash, you can't buy. A solution: Include in the lease option a provision that your contributions are refunded if you are otherwise in compliance, but the house fails to appraise for the strike price. Another solution: Provide in the lease option an extension of an additional year at no charge to you if the house fails to appraise. Another solution: Provide in the lease option that if the house fails to appraise, that the seller will reduce the price to the appraisal.

You Fail To Qualify For Financing
You should be working with a mortgage broker through the entire experience. Many investors who lease-option properties require the tenant-buyer to consult with a mortgage broker. (We can't insist they follow his/her advice, but we can require that they meet.) Find out what you qualify for now, and what you'll have to do to qualify for the purchase at the expiration of the lease-option. That's the way to minimize that surprise.

Owner Doesn't Want To Sell
That's not much of a problem in today's market. But when prices were rising nicely, a house that was worth $300,000 might have been offered as a lease-option at $315,000. However, at the end of the year or two, the house might actually have been worth $330,000, and the owner simply refuses to sell. He says, "sue me." And that would have been your option. There are a couple of ways to protect yourself today. Again, a land trust, in which the deed is transferred to the trustee, makes sure that the trustee follows the paperwork. Or have all the purchase documents signed, then put into escrow.

The Owner Sells To Someone Else
While you're renting, the owner simply sells the property to someone else. Solution: Cloud the title. This can be done with a "Memorandum of Agreement" filed at your local courthouse.

You Misunderstand The Terms Of The Lease Option
For example, you decide not to buy, and then ask for your option fee back. Most lease options provide that the option fee is non-refundable. Or, for example, you're late on your payments, and then are told that the lease-option is void, or that your rent credits are less than you'd anticipated. Most lease options contain some sort of penalty, ranging from loss of rent credits to voiding of the option. Or repairs have to be done to the property, and at the end of the option period you find the repair costs added to the purchase price. Many lease options provide that the tenant-buyer will be responsible for most or all of the repairs to the property. Those are just a few examples. The solution: Read the lease and the option carefully.

The Lender Invokes The Due On Sale Clause
If the seller has a mortgage on the property, it's likely the mortgage contains a "due on sale" clause, providing that if the owner transfers all or any portion of equitable interest in the property, the lender can call the mortgage immediately due and payable. Especially in today's climate, that's unlikely. But it could happen. Solution: Use a land trust. The Garn St. Germain Act excludes land trusts from the due on sale clause. (So long as certain conditions are met.) Another possible solution: Within the bounds of the law, take steps to prevent the lender from being aware that the property has been optioned.

Again, this isn't legal advice.

Hope that helps.

Thu May 22 2008, 10:21

Dear Stephanie,

There should never be any surprises at the end of any lease to own option, or for that matter, any surprises at the end of anything, if you carefully read your agreement and understood what you were agreeing to.

If you have found surprises after the fact, you will need to identify what those are and determine how you wish to handle them.

Regards!

SERGIO HERNANDEZ
Realtor
Downing-Frye Realty, Inc.
Naples, Florida
239.206.4405
sergio@golftobeach.com
http://www.golftobeach.com

Thu May 22 2008, 09:35

Hi Stephanie
It would be good to have an attorney review your lease option. Right now there are a lot of people trying to hang onto higher prices for their property. They opt for doing a lease option getting more money or a higher market price for the property then they would otherwise receive. Be Careful I currently have 15 properties that have been sold for more money then they were worth and are now the product of a short sale. Make sure the property you are looking at appraises out for the projected sales price. Have a realtor provide you with comparable sales in the area you are looking at. Good luck as usual buyer beware.

Brian Caron Realtor
239-659-3272

Sat May 17 2008, 11:03

Specifically is it a lease with option to purchase or is it a lease purchase option? They are two different animals--in the lease purchase you already have your sales contract with the seller. In the other one, it is essentially a rental with an option to buy at the end of the lease. Clarify this, and, really the previous answers are correct--it isn't a bad idea to consult a real estate attorney for a short consultation. I hope this helps.

Sat May 17 2008, 06:42

Stephanie,
You might want to have a real estate attorney take a look at your contract to be on the safe side.
Spending a few bucks might save you heart aches and thousands..

Good luck,
The "Eckler Team"
Century 21 Almar and Associates
ecklerteam@comcast.net
941-408-5363

Sat May 17 2008, 06:35

There should not be but I suppose that is speculative considering I do not know what your personal contract reads. Cut and dry with minimal verbage and numbers to match are the ones that I have dealt with.

Sat May 17 2008, 06:25

Hi Stephanie
I have some 3 bedroom and two bath condo that have a special deal attached to them. That if you are a renter and are ready to own contact me at bcaron@kw.com If you like the development you wont believe the deal. I currently have 15 available financing is in place and lots of help. If your a County or State employee there are additional benefits.

Brian Skip Caron Realtor
239-659-3272

Sat May 17 2008, 06:11